Dec 01, 2014,15.51 IST
10 simple & easy to follow rules for managing your finances
The definition of middle class or upper middle class is changing rapidly along with the increasing earning power. Effective management of your personal finance is mandatory to cope up with the collective demand the world is putting on your plate.
Read on to learn theTEN simple and easy to follow but the most important rules to manage your personal finance.
Rule 1 - Budgeting:
Planning your finances without budgeting is like eating food without salt. Adding little salt is not a big task, and think about the difference it brings in to your food. Make sure you develop a habit of budgeting as a part of your finance management routine.
Unfortunately, people, many times connect budgeting with cost cutting. It is not at all true. By budgeting, you will be able to understand clearly how much you earn, allocate for each cause and how much you invest. Many clients have found out that they can spend more on leisure activities after budgeting their finances.
Have fun by budgeting your finances well!
Rule 2 – Shrewd way of spending and saving:
Once I was asked by a known lady, “Sir, my husband and my friend’s husband are earning equally. She spends a lot on clothes& other stuff luxuriously and they are able to buy some assets continuously. Why this is not becoming possible for us whereas I spend less than her on clothes and other stuff?” After asking couple of questions, I found out that her friend has a habit of budgeting well.
Saving more doesn’t mean that you must spend less. You need to spend in a shrewd way. By following Rule no. 1, you will be able to focus on your spending, identify the trends and re-arrange the spending pattern. Track your expenses carefully and vigilantly, you will be easily understand where you can cut the costs and spend on things you enjoy the most.
Enjoy your life by spending smartly and saving more in parallel!
Rule 3 –Invest in Family Insurance Policies:
The recent incident that happened in my family friend’s life make me insist on Rule no. 3. His son of just 40 years died of heart attack suddenly on his way to his work, leaving behind elderly parents, wife and an 8 year old son. Even though he has some assets, without any immediate income, the family decided to lower their life style.
It is going to take years before the wife starts earning equalent to what her husband earned. If he has taken a right insurance policy, his family wouldn’t have to compromise on the lifestyle. Go for a pure term health and life insurance policies. Be cautioned about taking any ULIP schemes.
Protect your family well!
Rule 4 – Invest in Asset protection policies:
After rule 3, the planning must focus on protecting your assets. Accidents can happen which can damage your SUV where you have spent lakhs and lakhs on it. Natural calamity may ruin your house. You will be able to handle such situation well when you have a back-up finance plans in form of insurance.
Always take insurance policies for your assets!
Rule 5 – Allocate for emergencies:
The unexpected events or emergencies are part of life and we must acknowledge this in our finance planning process. Approximately 3 – 6 months of routine family expenses must be kept aside for handling such emergencies. This is the thumb rule I give out to my clients while helping with their personal finance management.
Relax during emergencies by allocating the funds well!
Rule 6 – Clear your debts quickly:
Paying off debts is the biggest headache most of you undergo, right. Let me tell you, this is not a huge task as you think. Again, planning well is what I am going to suggest. Debt payoff planning will help you to identify how much you need to allocate every month/quarter/fixed period to pay the debt and where you can save more or cut cost to quickly payoff the debt.
Choose the right saving and cost cutting mode to clear your debts quickly!
Rule 7 – Goal Setting:
Setting a goal is the key to succeed in whatever you do or manage. Always set a long term goal, say buying a house in 5 years. To achieve this, set short term goals such as you will invest in a particular ‘investment mode’ to earn ‘x’ amount in ‘Y’ period, so that you can buy a house in 5 years without a loan. Without a goal, you won’t be able to reach where you want to be.
Set your goals straight to avoid being in neverland!
Rule 8 – Plan for your Retirement:
Want to lead the same lifestyle after retirement? You must start planning for the retirement as soon as you start earning. Not yet done. Ok, better late than never. Understand how inflation works and plan how much money you would require to spend on the same lifestyle, after 20 or less/more years.
Save and start investing wisely to lead a happy retirement life! Do it now……..
Rule 9 – Evaluate and re-balance your finance portfolio:
Evaluating, assessing and rebalancing your finance portfolio is the utmost important rule you must follow periodically. This will help you to keep track of your earnings, expenses and lead to efficient cost cutting and saving options.
Always review your finance planning!
Rule 10 – Hire a professional:
Even though, there are many suggestions available from various sources, availing professional guidance always adds a great value. Take help from the personal finance advisors to assess your finance goals, budgeting measures and effectively manage your finance.
Follow these rules diligently. You will definitely reach a better place in the world of Finance!
The author is Ramalingam K, CFP CM is the Chief Financial Planner at holisticinvestment.in, a leading Financial Planning and Wealth Management company.
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